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CRS — Panama: Political and Economic Conditions and U.S. Relations

Source: Congressional Research Service (via U.S. State Department Foreign Press Center)

With five successive elected civilian governments, the Central American nation of Panama has made notable political and economic progress since the 1989 U.S. military intervention that ousted the regime of General Manuel Antonio Noriega from power. Current President Ricardo Martinelli of the center-right Democratic Change (CD) party was elected in May 2009, defeating the ruling center-left Democratic Revolutionary Party (PRD) in a landslide. Martinelli was inaugurated to a five-year term on July 1, 2009. Martinelli’s Alliance for Change coalition with the Panameñista Party (PP) also captured a majority of seats in Panama’s National Assembly. Panama’s service-based economy has been booming in recent years – with a growth rate of 7.6% in 2010 and 10.6% in 2011 – largely because of the ongoing Panama Canal expansion project, now slated for completion in early 2015.

The CD’s coalition with the PP fell apart at the end of August 2011when President Martinelli sacked PP leader Juan Carlos Varela as Foreign Minister. Varela, however, retains his position as Vice President. Tensions between the CD and the PP had been growing throughout 2011, largely related to which party would head the coalition’s ticket for the 2014 presidential election. Despite the breakup of the coalition, the strength of the CD has grown significantly since 2009 because of defections from the PP and the PRD and it now has a majority on its own in the legislature. President Martinelli’s strong approval rating diminished in the aftermath of his break with the PP in 2011, but has recovered recently. President Martinelli’s has been criticized by civil society groups and political opponents for taking a heavy-handed approach toward governing and for not being more consultative. At times, strong public protests have resulted in President Martinelli backing away from unpopular policy initiatives. While Panama’s next presidential election is not scheduled until May 2014, the country will be gearing up for the race in early 2013. Martinelli is not eligible to run since Panama’s Constitution only allows for a president to return to power after two terms (10 years).

U.S. Relations

The United States has close relations with Panama, stemming in large part from the extensive linkages developed when the Canal was under U.S. control and Panama hosted major U.S. military installations. The current relationship is characterized by extensive counternarcotics cooperation; support to promote Panama’s economic, political, and social development; and a bilateral free trade agreement (FTA) that entered into force at the end of October 2012. U.S. bilateral assistance amounted to $3 million in FY2011 and an estimated $2.8 million for FY2012 while the FY2013 request is for $3.7 million. This funding does not include health assistance to combat HIV/AIDS and malaria funded under regional programs or assistance allocated to Panama under the Central America Regional Security Initiative (CARSI) that assists countries in their efforts to combat drug trafficking and organized crime. A number of U.S. agencies provide additional support to Panama.

The United States and Panama signed the bilateral FTA in June 2007, and Panama’s National Assembly approved the agreement in July 2007. After more than four years, the U.S. Congress considered and approved FTA implementing legislation, H.R. 3079, on October 12, 2011, which President Obama signed into law on October 21, 2011 (P.L. 112-43). U.S. Congressional concerns had included Panama’s labor rights and tax transparency issues, but the Obama Administration worked with Panama to resolve concerns over these issues. After the FTA was approved by both countries, work began on the implementation of the agreement over the next year. The agreement entered into force on October 31, 2012, after both countries had completed a thorough review of their respective laws and regulations needed for FTA implementation.